Should Microsoft kill Windows Phone?

The company is backing away from Android and doubling down on its own smartphone OS just when the smart move seems to be to surrender

It’s been nearly four years since Microsoft first released Windows Phone, and what it has gotten after many millions of dollars in development and marketing costs, plus its $7.2 billion acquisition of Nokia, is this: a worldwide smartphone market share of less than 3%. And that number has been going down, not up.

Ask any smart businessperson whether that investment is a good one, and you’ll get a straightforward answer: no. Over at Microsoft, though, they think differently. Rather than abandoning Windows Phone, they’re doubling down and making an even bigger bet on the struggling smartphone operating system. A company with Bill Gates’ DNA will never willingly admit defeat, but in this case it may be time to do just that and instead hitch its mobile wagon to Android.

The numbers explain why this might be the best option at this point. They’re not pretty. The latest figures from Strategy Analytics show Windows Phone with only a 2.7% worldwide share of the smartphone market in the second quarter of 2014, compared to an 84.6% market share for Android and 11.9% for iOS. That 2.7% figure is down from 3.8% a year earlier. And even that understates how badly Windows Phone is doing. In the second quarter of 2014, shipments of all smartphones were up 27% compared to a year previous — but Windows Phone shipments fell in that year, from 8.9 million devices in the second quarter of 2013 to 8 million devices in the second quarter of 2014.

Windows Phone is struggling in the world’s two largest smartphone markets, the U.S. and China. For May, Kantar Worldpanel ComTech found, its market share was 3.8% in the U.S., down from 4.7% a year previously. And in China, it was a barely measurable 0.6%, compared to 3% a year earlier.

By any measure, Windows Phone has been headed in the wrong direction. Earlier this year, Microsoft seemed poised to adopt a backup plan that would keep it in the mobile game even as Windows Phone tanks. As it was preparing to acquire Nokia, the handset maker released a line of low-end Android phones called the Nokia X, aimed at the developing world. Though the phones don’t run a Microsoft OS, they do carry Microsoft services, such as Skype, and OneDrive. That would allow Microsoft to make money on the services the phones carry, in the same way that Google makes money on any of its services that other Android phones carry.

Nokia was still ostensibly an independent company at the time, but is it possible that it decided to release Android phones without the blessing of its soon-to-be owner, Microsoft? That doesn’t seem likely. And it’s worth noting that after the acquisition was finalized, Nokia released a new generation of the phones, the X2. It looked like a smart move, given those disastrous Windows Phone numbers.

On the other hand, it could be that Microsoft just never knew what it was doing when it bought Nokia. Because in mid-July, Microsoft abandoned the experiment and instead doubled down on its bet on Windows Phone. It announced that it would sell low-cost Windows Phones and kill off the X2 line. The brief flirtation with Android was over.

This looks like an outrageously bad move. It’s not just that Windows Phone is going nowhere. It’s caught in a death spiral. Apps sell phones, and developers have been leery of developing apps for Windows Phone because of its low market share. As the market share drops, even fewer developers are willing to develop for it. Because of that, consumers stay away, which leads to less market share, which leads to fewer developers devoting resources to it.

Android, meanwhile, has more of a lock on the worldwide smartphone market than ever. So it may well finally be time for Microsoft to abandon Windows Phone and instead fully embrace Android using the Nokia X model: build Android phones with Microsoft services on them such as, Bing, Skype and OneDrive. Doing that might be a blow to Microsoft’s ego. But it could prove to be a big lift to its bottom line.

Copyright © 2014 IDG Communications, Inc.

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